StanCollender'sCapitalGainsandGames Washington, Wall Street and Everything in Between

Automatic CR? No! Automatic Debt Ceiling? Yes!

22 Sep 2009
Posted by Stan Collender

If you love the congressional budget process (and, let's face it, who doesn't?) my column from today's Roll Call will make you very happy.

Two Perennial Issues in the Budget Process Are About to Bloom

Sept. 22, 2009

We are at the point when two perennially discussed budget process changes will start to be a big topic in Washington, D.C. In the coming weeks, Capitol Hill, pundits of all political stripes and some in the blogosphere will likely advocate two proposals: an automatic continuing resolution and eliminating the need for legislated increases in the federal debt ceiling.

One of these should be adopted; the other should never be heard from again.

An automatic continuing resolution usually comes up in September because, as the start of the new fiscal year gets closer and appropriations have not yet been enacted, someone usually says there has to be a better way for Washington to conduct its business. Along with changing the start of the fiscal year from Oct. 1 to Jan. 1 to provide additional time for the work to be completed, an automatic continuing resolution, which would provide funding at a predetermined level without a vote, almost always is one of the recommended solutions.

Eliminating the debt ceiling is mentioned whenever the government reaches its current borrowing limit. We’re currently close. The Treasury has already announced it is taking the steps that it can to delay reaching the current limit, but it still appears that may happen in October.

This should be a purely administrative function. After all, in most cases the decisions to do the things that require the additional borrowing have already been made. But it usually turns into a political nightmare, because the party in the minority tries to use the vote to embarrass the White House and the majority by showing they can’t govern, can’t control their own Members, are big spenders, etc. In the meantime, interest rates are affected because Wall Street doesn’t like not knowing whether the government will be able to go ahead with its already-scheduled borrowing. And some of the ways the government delays the day of reckoning are politically charged, extremely controversial and at least as easy to demagogue as the debt ceiling increase itself..

Although almost always described in good government terms, the fight over an automatic continuing resolution proposal typically is an attempt by one side in the spending debate to gain an advantage over the other. The proposal generally establishes a spending formula for a bill that would be automatically adopted if an agency’s or department’s appropriation isn’t in place by the start of the fiscal year. For example, if an appropriation wasn’t enacted by Oct. 1, the department would get exactly what it got the previous year, or the previous year plus the projected rate of inflation, etc.

The problem is that any of these seemingly neutral policies create strong incentives for some Members of Congress never to vote for the regular appropriation and let the automatic policy go into effect. If, for example, the president proposed no increase over the previous year for a program that a Member favored and the Appropriations committees went along, a continuing resolution that provides an automatic increase at the rate of inflation is a far better alternative. The mirror image is also true. A Member of Congress who favors a reduction in overall spending has no incentive whatsoever to debate appropriations that provide increases even if he or she is able to get the increase reduced. Whether it’s an increase or decrease, the automatic number becomes the bottom line. And, of course, Members could avoid voting for any spending at all by allowing an automatic CR to be used for all appropriations.

In other words, an automatic continuing resolution would have the opposite effect of what we should want to happen. Fewer rather than more Representatives and Senators will be willing to support compromises on spending bills so they can be enacted and the number interested in getting any appropriations adopted will fall. An automatic CR that included an increase effectively would turn the appropriation into an entitlement and make the federal budget even harder to control.

The need for legislation to increase the federal debt ceiling is more than just a fiscal anachronism; it’s a vestigial budget organ from another time and place that no longer serves any purpose.

There was a time when Congress had to approve each borrowing done by the Treasury. When that proved to be unwieldy, the process was changed so that Congress only had to approve a ceiling and the Treasury was free to manage the debt up to that limit.

But the current debt ceiling no longer serves any meaningful purpose and instead is little more than an excuse for a political food fight. Two-thirds or so of federal spending is mandatory and virtually all revenues are collected with ongoing provisions that effectively make them mandatory as well. In addition, most of the remaining one-third of the budget is either military or domestic spending that, at least in the aggregate, is not likely to be cut. That means that the amount the government borrows mostly is the result of decisions made in previous years, which Congress and the president chose not to change.

Borrowing decisions actually are made whenever a spending or revenue bill is adopted. So the new debt ceiling should be increased automatically as part of those decisions. Members of Congress who earlier in the year are more than willing to vote in favor of the spending increases or revenue reductions that require Washington to borrow more should not be allowed to vote against the legislation that actually allows the government to do that additional borrowing.

Continuing Resolution (CR)

I think most people would agree that shutting down the government is a bad idea. However, an automatic CR is also a bad idea because it masks the problems that a CR creates.
Agency budgets assume that there is a 12-month period to execute the financial and performance plans included. Under a CR, some of those plans cannot be executed as envisioned. Now, a delay of a few weeks is not a major problem, but when agencies have to wait until February to begin some programs, major problems are guaranteed.
The CR problems include both “new starts” and “limited funding action.” CRs typically prohibit agencies from starting a program that was not in the previous year’s budget. If the agency planned to start the program in the first quarter of the fiscal year but has to wait until the second quarter, there will probably be problems.
To me, the bigger concern was “limited funding actions”, Section 110 in the FY 2010 CR: “This joint resolution shall be implemented so that only the most limited funding action of that permitted in the joint resolution shall be taken in order to provide for continuation of projects and activities.”
As a former budget officer, I took a broad interpretation of this section, believing that Congress just wanted to agency to keep going until a final appropriation could be passed. I tried to avoid “stupid” action like hiring freezes and cancelled discretionary travel and training, though I knew colleagues at other agencies who used this section to justify all manner of “No!” Program managers quickly learned that a CR was always a reason not to do something discretionary.
What’s the answer? My gut reaction is to shut down the government until appropriations are passed. However, experience in the 1990s showed that this approach doesn’t necessarily work. And, shutting down the government is probably “stupid.”
So, how about this? When there is a CR, agencies report on some public website (transparency, you know) all those things that they are not doing during the CR. This will let the public know the “cost” of Congressional inaction. [Hopefully, not too many people will say, “I’m glad they’re not doing that!”] It may not shame Congress into action, but it could provide fodder for their political opponents.

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